Cummins Inc., a major motor vehicle engine company based in Columbus, Indiana, recently reached a proposed settlement agreement that includes a $1.675 billion civil penalty—the largest ever assessed in a Clean Air Act (CAA) case.

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“The news comes as a surprise for a company known for environmental stewardship,” says Indiana Public Radio.

On January 10, 2024, the EPA, the Department of Justice (DOJ), the California Air Resources Board (CARB), and the California attorney general’s office released the details of a proposed settlement with diesel engine maker Cummins that included the civil penalty plus an additional $325 million to remedy the violations, which included the use of software “defeat devices” that circumvented emissions testing and certification requirements.

“Under the settlement, Cummins must complete a nationwide vehicle recall to repair and replace the engine control software in hundreds of thousands of RAM 2500 and RAM 3500 pickup trucks equipped with the company’s diesel engines,” an EPA news release says. “Cummins will also extend the warranty period for certain parts in the repaired vehicles, fund and perform projects to mitigate excess ozone-creating nitrogen oxides (NOx) emitted from the vehicles and employ new internal procedures designed to prevent future emissions cheating. In total, the settlement is valued at more than $2 billion.”

“Cummins installed illegal defeat devices on more than 600,000 RAM pickup trucks, which exposed overburdened communities across America to harmful air pollution. This record-breaking CAA penalty demonstrates that EPA is committed to holding polluters accountable and ensuring that companies pay a steep price when they break the law,” said David M. Uhlmann, assistant administrator for the Office of Enforcement and Compliance Assurance, according to the EPA 2024 Cummins Inc. Vehicle Emission Control Violations Settlement website.

It's important to note that a consent decree doesn’t mean a company has admitted any wrongdoing.

Jon Mills, Cummins’ director of global brand and external communications, said that “these so-called ‘defeat devices’ are actually just a defect with the company’s auxiliary emissions control devices — something many engines have,” the Indiana Public Radio article notes. “Mills said the [EPA] and [CARB] discovered the problem in 2019 during the certification process.

“We’ve seen no evidence that anyone had acted in bad faith and, of course, no wrongdoing. The fact is, we’ve been working collaboratively over the last four and a half years with the agencies to resolve this matter,” he added.

Penalties

• In addition to the $1.675 billion environmental penalty in the defeat device matter, Cummins must pay $175 million to California’s environmental mitigation fund and spend any amount necessary to complete the recall and repair and to implement the mitigation project.
• Cummins must implement a recall and repair program to remove all defeat devices in the model year 2013 through 2019 Ram 2500 and 3500 diesel vehicles and replace the vehicles' software so they comply with EPA and California emissions standards. Cummins will offer an extended warranty on all vehicles that receive one of the recalls.
• Cummins’ $175 million payment will be used by CARB to mitigate emissions in the state.

Recall and repair program

Under the proposed settlement terms, Cummins must work with Fiat Chrysler and its dealers on a vehicle recall and repair program that will remove all defeat devices from the affected 2013 to 2019 RAM trucks free of charge and bring the vehicles into compliance with applicable CAA emissions standards. The required repairs only involve a software update.

“Cummins must repair at least 85% of the 2013-2019 RAM trucks equipped with defeat devices within three years,” the EPA news release continues. “The company must offer a special extended warranty covering emission control system parts on 2013-2019 RAM trucks that receive the replacement software. Cummins also must test some of the repaired trucks over a number of years to ensure that the trucks continue to meet emissions standards over time.”

Mitigation programs

Cummins is also required, under the proposed settlement terms, to fully offset the excess NOx emissions that resulted from the installation of the defeat devices. The $175 million CARB payment will resolve the excess emissions in California. 

For the rest of the country, NOx offsets will be achieved through Cummins working with railroad locomotion owners on two locomotion emissions reduction programs:

• Cummins will finance and ensure the replacement of 27 old, high-emitting diesel locomotive engines with new, low-emitting diesel or electric engines.
• Cummins will also fund and complete 50 projects that will reduce idling time for diesel-powered switch locomotives to reduce fuel usage and emissions of NOx, particulate matter, volatile organic compounds, and carbon dioxide.

Aftermath

As a result of the initial, explosive announcement about the company’s record-setting settlement agreement with the EPA and CARB, multiple sources reported Cummins stock prices suffered a substantial reduction in value. The alleged installation of the defeat devices has also resulted in the filing of a securities class action lawsuit in which “Cummins and certain of its executives are charged with failing to disclose material information during the Class Period”—a violation of federal securities laws.